Value investors are often wary about investing in a stock once it has reached a new high, feeling like they are overpaying for a company that might have already priced in most (if not all) of the upside potential that the business may carry. However, choosing to pass on these opportunities creates one of those moments where investors come back a few years later and wish they had bought, even if it represented a premium when the deal was first on the table.
[content-module:CompanyOverview|NYSE: SPOT]What they must realize is that today’s stock market isn’t like the one when the discipline of value investing first floated around for portfolios. When information was slowly spread around different assets, participants had to do the real digging around to find these opportunities. Today, with the advent of information becoming available to nearly everyone, prices move a lot quicker, and information is priced in a lot more aggressively.
Under this thinking, those who are looking away from shares of Spotify Technology (NYSE: SPOT) because of its recent bullish momentum might come to regret it in the future, as this company will likely keep proving everyone why it has rallied by this much and this consistently. Rooted in fundamentals and momentum, this technology stock’s underlying indicators stand to push the stock higher than where it is today.
Performance Is Outstanding At Spotify
Starting with Spotify's most recent financial performance, investors can start to shape up their belief in higher prices through a few very important key performance indicators (KPIs). Breaking down Spotify's latest quarterly financial results will reveal a few things.
Starting with what drives all business growth, Spotify reported 678 million monthly active users, representing a net growth rate of as much as 10% over the past 12 months. This showcases the fast adoption rate despite Spotify still having a significant share of the music and podcast streaming market.
This growth translates to a total revenue figure of up to $4.1 billion, or 15% higher than the previous year. Now, this revenue growth isn’t the main push for higher valuations, but the way that Spotify collects this revenue itself, which is a subscription-based model.
During times of market uncertainty and volatility (like today’s S&P 500), investors tend to prefer companies that collect revenue on a stable and predictable basis (through subscriptions), which might explain some of the momentum behind Spotify stock’s 116.6% upswing over the past year alone.
More importantly, a high profit margin and capital retention rate enable management to reinvest in further growth and value compounding moving forward. This is expressed through up to $534 million in free cash flow (operating cash flow minus capital expenditures), pushing over 158% growth for the year.
With all of this free cash flow being reinvested into growth, investors can notice Spotify generating up to 17.7% in return on invested capital (ROIC) rates, one of the most important metrics value investors look for. ROIC matters because the annual stock price performance matches the long-term ROIC rate over time, compounding investor capital at attractive rates.
The Market’s Optimism For Spotify’s Future
This triple-digit growth in free cash flow might only be the beginning for Spotify’s journey, as Wall Street analysts now forecast up to $10.00 in earnings per share (EPS) for the fiscal year 2025, implying a jump of 75.4% from last year’s EPS, and as most investors know this is what tends to drive buyers into any business.
[content-module:Forecast|NYSE: SPOT]Some have already started to position themselves before the new growth wave arrives, as seen through the 2.3% boost in holdings by institutional allocators from Amundi, bringing their net position to a high of $428.6% million today, a sign of confidence in Spotify’s future growth.
Another confirmation can be taken from Guggenheim analyst Michael Moris, who decided to reiterate his Buy rating on Spotify stock as of May 2025, along with a $725 valuation. Compared to today’s price, this call would imply as much upside as a 10.5% upside for investors to consider, with the possibility of further upgrades down the line from all this EPS growth.
The market is also willing to embrace this path higher for Spotify stock, as it trades at 110.2x price-to-earnings (P/E) to call a significant premium to the rest of the sector average of 27.3x. This is where most value investors turn away, calling the stock expensive and failing to realize that the market will always pay a premium for the stocks it believes can keep outperforming the market.
Judging by how Spotify’s financials have grown and are set to keep growing, this premium paid for the stock is justified to keep delivering double-digit growth and upside.
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